Kellogg’s Sugary Cereal, Snack Bar Settlement Rejected: Here’s Why [UPDATE]

Just when it seemed like all was said and done with the proposed settlement over Kellogg’s claims that its high-sugar cereals and snack bars were in fact healthy, a federal judge has sent the deal back to the drawing board. 

Last October, ClassAction.org detailed the proposed $31.5 million settlement between Kellogg Sales Company and consumers who alleged they were deceived by labels that essentially downplayed or concealed just how much sugar each product contained. Last week, U.S. District Judge Lucy H. Koh, in a 17-page order, denied the plaintiffs’ motion for preliminary settlement approval due to a number of inadequacies ranging from the procedural to the practical. Judge Koh found that shortcomings with the proposed agreement prevented her from concluding that the settlement was “fundamentally fair, adequate, and reasonable” and therefore could not receive her stamp of approval.

The denial of the proposed settlement prolongs litigation that’s entered its fourth calendar year—not to mention extends how long consumers will have to wait before they’ll be able to file their claims. But, it serves as a reminder that no matter how buttoned up a deal may appear on paper, the judge is the final gatekeeper between restitution and revision, serving as the last checkpoint to ensure a proposed deal satisfies nuanced legal requirements and offers the relief needed to benefit consumers.

The parties handling the settlement must now go back to the negotiating table to address the five issues the judge pointed out in her order.

Below, we’ve broken down the reasons why Judge Koh felt the proposed settlement fell short.

First, Judge Koh ruled that the deal’s release—which would free Kellogg Sales Company from liability for those who claim a piece of the settlement—is too broad. Judge Koh wrote that in light of the “sweeping language” of the clause, found on page 19 of this document, the proposed settlement attempts to release Kellogg from claims too far beyond—and potentially unrelated to—those made by the plaintiffs in their lawsuit.

Essentially, the judge instructed the parties handling the settlement talks to “narrow the scope” of the release so that it’s in line with precedent set by the Ninth Circuit. Judge Koh added that the Ninth Circuit court has typically allowed for a release of claims based solely on the specific allegations outlined in a lawsuit, whereas the proposed settlement included language that would effectively free the defendant from claims “of every nature and description whatsoever.”

Bottom line, the wording of the release of claims against Kellogg must be scaled back a little bit so as to cover more precisely only what’s been alleged in this particular lawsuit.

Next, Judge Koh stated she was unable to determine whether it was appropriate to give her stamp of approval to the group of consumers the settlement was designed to cover. In essence, Judge Koh felt the group of Kellogg buyers proposed to receive settlement benefits was too broad, namely in that the deal attempted to cover those who didn’t purchase the Raisin Bran, Smart Start cereal, Frosted Mini-Wheats and Nutri-Grain bars labeled with the supposedly misleading health statements.

Third, the court found that the proposed settlement fell short in that the vouchers available through the deal come with expiration dates, an issue that has been hotly contested in recent years (more on this below).

According to court documents, each voucher made available through the settlement’s $8,250,000 voucher component expires after four months. When a voucher expires, Judge Koh wrote, the value of the voucher effectively “reverts” back to Kellogg and the company “is then under no obligation to make any payment.”

While settlements that provide money back to the defendant are unfavorable but legal, the court must be given certain information, including an estimate of how much money will be given back to the defendant and why doing so is appropriate, before giving the green light.

“The parties failed to do so here,” Judge Koh wrote.

Fourth, and particularly important for consumers, Judge Koh found that numerous aspects of the proposed claim form, opt-out form and notice forms were inadequate to the point of being misleading. The court highlighted “numerous inconsistencies” between the forms, a “needlessly burdensome” opt-out procedure, and claim form language that presents a “misleading choice” between the cash and voucher options. Koh also took issue with the forms’ failure to disclose a number of administrative details, including the amount of attorneys’ fees and notice costs counsel would be seeking from the settlement.

Chief among the notice issues, however, was that the claim form implied to class members the amount of monetary relief available through the cash option is 50 percent lower than what’s recoverable through vouchers, when in fact the opposite is true.

Lastly, the judge found the settlement’s voucher component failed to pass muster when it comes to the Class Action Fairness Act (CAFA), which has made it far more difficult for “coupon settlements” to be OK’d in court. In determining whether a proposed deal amounts to a “coupon settlement” under the CAFA, courts will consider whether class members have to pay more money of their own before they can take advantage of a voucher; whether the voucher is valid for only select products or services; and the overall flexibility provided by the voucher, including whether it expires or is freely transferrable.

What sunk the vouchers in this case was both their expiration dates and the extremely narrow list of just seven Kellogg’s products for which the vouchers could be used.

So, what comes next?

The parties will submit to the court a revised settlement proposal. When that happens, we’ll update this page.

When will I be able to file a claim?

That’s unclear at the moment. The period in which claims can be filed will likely begin if and when the settlement is given preliminary approval. Given that the parties have a number of things to tidy up before trying again with the judge, it may be a while. Either way, we’ll keep you updated.

How can I stay informed?

Aside from checking back with this page, signing up for ClassAction.org’s newsletter is a good place to start.

The judge’s order denying preliminary settlement approval can be found below.